Costello lashes out at government

Former federal treasurer
Peter Costello
has launched a scathing attack on the government’s economic management, accusing Labor of wasting the resources boom and failing to address stagnating productivity.

A fired up Mr Costello said the federal government was presiding over the biggest boom since the 1860s gold rush and should be posting big budget surpluses, not ringing up public debt that would leave the economy exposed when the soaring terms of trade eventually decline.

Mr Costello, now a partner at boutique corporate adviser BKK Partners, warned that the economy and budget were surviving on the terms of trade – export prices relative to import prices – being driven by Asia’s demand for coal, iron ore and gas.

Instead of saving the proceeds from the mining boom, Mr Costello, who was treasurer for 11 years until 2007, said Labor was introducing new taxes, including the carbon tax, mining tax and flood levy.

“This is a once in a 100-year experience," Mr Costello said. “This is the gold rush. In my view we should be putting something aside. The terms of trade are massively in front of where they were in the ’90s, ’80s and ’70s. It ain’t going to get any better than this."

While stopping short of calling for a sovereign wealth fund, Mr Costello said the Future Fund, which he set up to pay for public servants’ superannuation, should be used to save revenue for the resources boom and to “insulate" the economy from future economic shocks.

In a speech to financial advisers in Sydney, Australia’s longest-serving treasurer opened up a new line of attack on the government, accusing it of doing nothing to improve productivity – a criticism repeatedly used by Treasurer Wayne Swan while in opposition.

Multi-factor productivity declined by an average of 0.2 per cent a year over the four years to 2007-08, after growing by an average of 1.6 per cent a year since 1993-94. It recorded its largest decline – 2.7 per cent – in 25 years in 2008-09, partly due to the impact of the global financial crisis.

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In his address last week, Mr Costello presented a chart showing the decline in productivity, which measures how efficiently the economy’s inputs (labour and capital) produce outputs (goods and services) and according to economists is the ultimate determinant of our long-term living standards.

“Our problem is productivity peaked in the early 2000s and is now poor," Mr Costello said.

In his two-prong attack against government debt and poor productivity, Mr Costello then presented a chart showing the sharp increase in government net debt.

“Just as productivity is falling, the government has slipped back into debt. All of the debt we have paid off is back again."

A spokesman for Mr Swan said last night: “Peter Costello squandered the opportunities presented by the mining boom mark 1 and the Treasurer has no intention of repeating his errors during mining boom mark 2."

“Peter Costello can rest assured that the government will not follow his example by wasting the proceeds of a mining boom."